Eastern Gulf Crude Access pipeline won't be linked to St. James: ETP

Houston (Platts)--6 Nov 2013 220 pm EST/1920 GMT

Energy Transfer Partners have garnered "significant interest" for its Eastern Gulf Crude Access pipeline project, but have not gained enough customer support to build a lateral to St. James, Louisiana, President and Chief Operating Officer Mackie McCrea said Wednesday.

"The outcome of the open season did not justify us building a line down to St. James, so we are... in negotiations [with several customers] to transfer that crude to another market," he said during the company's quarterly earnings call. He did not say what other markets are being considered.

"We continue to be very optimistic [that we will] ultimately fill up that pipeline with crude by 2016," he said.

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The pipeline would originate near Patoka, Illinois, ending near Boyce, Louisiana. In Louisiana, ETP was planning to construct a 160 mile, 30-inch diameter pipeline to the crude oil terminalling hub in St. James.

Shippers may be "taking a wait-and-see attitude regarding the total demand in the St. James market," Turner, Mason and Co. Senior Vice President John Auers said Wednesday in an email. "I think there is room [there] for both Ho-Ho and [Eastern Gulf Crude Access] barrels."

Shell said earlier this month that it would move forward with expanding capacity on its reversed Houma, Louisiana-to-Houston, Texas crude pipeline system. The so-called Ho-Ho line is being reversed in a phased project.

The first phase was completed in January to deliver crude from East Houston to the Nederland/Port Arthur area in Texas. The second phase, which will enable crude from the Texas markets to reach Louisiana markets should be fully operational by the end of 2013, Shell said.

Capacity for the Nederland-to-St. James/Clovelly route of the Ho-Ho system will be hiked to about 375,000 b/d by early 2014, the company said. The line's current capacity is about 360,000 b/d, according to Shell spokeswoman Destin Singleton.

Hoping to take advantage of the Ho-Ho pipeline's capacity is Oiltanking Partners, who Wednesday announced several pipeline projects. One of which is planned to facilitate movements of Houston-area crudes eastbound to Texas and Louisiana refining centers.

The partnership expects to spend $200 million on crude expansion projects to in part tie its Houston terminal in with the Crossroads Junction, "a critical distribution point for the Houston market," it said in a statement.

Oiltanking's expansion projects include a 24-inch pipeline to Crossroads to allow its "terminal customers access to the origination point of Shell Pipeline's Houston-to-Houma pipeline," it said. The pipeline is expected to be completed by the end of 2014.

Once in St. James, barrels from the Ho-Ho pipeline will compete for market share with barrels of North Dakota's Bakken Shale crude being sent by railcar into the hub. The same would have been true for crude moving into the area from ETP's proposed St. James lateral.

Barrels moving on the ETP lateral should have "beat rail," Auers said, noting that "getting into to St. James would be the place to go."

ETP said during the summer in an open season notice that the Eastern Gulf Crude Access pipeline could transport up to 420,000 b/d of crude into St. James. An original open season for the project was extended by ETP and closed on September 30.

During Wednesday's call, ETP's McCrea said "it remains to be seen exactly what market [the pipe] will go to or how we will size the pipe."

McCrea noted that ETP expects to soon receive the US Federal Energy Regulatory Commission's approval to convert portions of Trunkline Gas Co.'s existing 30-inch natural gas pipeline between Illinois and Louisiana to crude oil service as part of the Eastern Gulf Crude Access project.

Trunkline Gas Co. is a subsidiary of ETP and Energy Transfer Equity. Before it switches Trunkline to oil, ETP first has to persuade FERC that ending part of its natural gas service would not leave Illinois and Michigan customers stranded.

"We expect to have the abandonment approval from FERC soon... It could be any day now," McCrea said.

Analysts previously said that the ETP's project's fate could be contingent on whether Transcanada's Keystone XL project gains regulatory approval. The Eastern Gulf Crude Access pipeline could serve as an alternative route to be another route to bring down heavy crudes from Canada, one analyst previously said.

The $5.3 billion northern segment of Keystone will run 850 miles from Hardisty, Alberta, to Steele City, Nebraska, carrying up to 700,000 b/d initially and up to 830,000 b/d after planned pumping upgrades. TransCanada plans to put into service by the end of the year a southern segment, which will run from Cushing, Oklahoma, to Nederland, Texas.

Initial capacity of the $2.3 billion so-called Gulf Coast Pipeline will be 700,000 b/d, with a possible expansion of up to 830,000 b/d, TransCanada has said.

Oiltanking is also planning to gain access to the Gulf Coast Pipeline as part of the crude expansion projects, according to its statement. It intends to construct a 36-inch pipeline to the Crossroads Junction "that will give our terminal customers access to the termination point of TransCanada Corp.'s Gulf Coast Pipeline from Cushing, which is expected to connect to the Keystone XL pipeline if approved and constructed."

The 36-inch line is expected to be completed by the first quarter of 2015, it said.

Oiltanking will also construct 3.5 million barrels of new storage at its Appelt facility near its Houston terminal, bringing the total storage capacity there to nearly 10 million barrels, it said.